Former
Senate President Stanley Rosenberg, who left his ornate
third-floor office upon stepping down from the post last
month, has landed in a basement office while an ethics
investigation into him plays out.

Rosenberg, who vacated
the presidency amid allegations his husband sexually
assaulted or harassed four men, will work with four staffers
out of Room 70 in the State House basement.

The space usually serves as a temporary office for new
senators as they await an office assignment, according to
Mara Dolan, a Rosenberg spokeswoman.

"This is a standard temporary office for a senator,"
Dolan said. "There's nothing unusual about this."

Tax collections in December left Massachusetts government
flush with unbudgeted cash as revenues for the first half of
the fiscal year have exceeded estimates by $728 million,
shedding light on Gov. Charlie Baker's decision this week to
lift the hold he had put on legislative spending earmarks.

The Department of Revenue announced Thursday that the
more than $3 billion in taxes collected in December exceeded
projections by $527 million, or 21.2 percent, and beat last
year's mark by $517 million.

After the first six months of fiscal 2018, the state has
now collected more than $12.9 billion, which is 6 percent
above the benchmark and 8.1 percent, or $966 million, higher
than the first half of fiscal 2017.

Revenue department officials said collections were
"heavily back loaded" to the final few collection days of
the month, and may, in part, have to do with a shift in the
timing of estimated payments before the New Year and the
effective date of tax rules under the new federal tax law.

It is also believed that the strong performance had
something to do with end-of-year bonuses, which companies
may have been more comfortable doling out as the corporate
tax rate is due to fall.

If taxpayers accelerated payments to take advantage of
expiring deductions and other tax code benefits, the
December windfall, officials said, may get taken out of
receipts expected in January or in later months in the year,
serving to level off the rate of the growth.

Another benefit from the Republican tax bill, which was
ridiculed by political leaders around the state, may be an
electricity rate discount.

Eversource, recently approved by state regulators to
implement significant rate increases, was one of the
companies feeling generous, and announced that because of
the corporate tax cut they would actually be cutting rates
in eastern Massachusetts and reducing the hike in western
Massachusetts.

December's massive tax haul may influence state
government leaders as they work next week against an
approaching deadline to agree on an estimate of available
tax revenues for fiscal 2019, which begins in July 1.

Tax receipts in December exceeded projections by $527
million and collections over the first six months of fiscal
2018 are up 8.1 percent, or nearly $1 billion. It's the kind
of revenue growth that many in state government believed
would follow the steady job growth Massachusetts has been
experiencing. But the state has instead been stung by anemic
growth in recent years....

The influx of revenues may give state leaders cover to
pump up estimates and fatten election year spending plans.
The risk in that approach is a return to the slow-growing
revenues that characterized the second half of each of the
last two fiscal years.

Some Eversource customers who braced for
higher charges could end up paying less for their
electricity after the energy company proposed changes based
on the new federal tax law.

Eversource anticipates paying millions of
dollars less in taxes under the tax law President Donald
Trump signed in December, which reduces the corporate income
tax rate from 35 percent to 21 percent.

"We believe it's important that our
customers reap the benefit of a lower tax rate,” Eversource
Massachusetts Electric Operations President Craig Hallstrom
said in a statement. "As a regulated power company our rates
are based on our costs, including federal taxes, so if taxes
are reduced ultimately costs are reduced and that benefits
our customers."

The Department of Public Utilities in
November approved a rate increase of $12.2 million for
Eversource customers in eastern Massachusetts and
approximately $24.8 million for western Massachusetts.

Democrats in high-cost, high-tax states are
plotting ways to do what their states’ representatives in
Congress could not: Blunt the effect of the newly passed
Republican tax overhaul.

Governors and legislative leaders in New
York, California, and other states are considering legal
challenges to elements of the law that they say unfairly
single out parts of the country. They are looking at ways of
raising revenue that are not penalized by the new law. And
they are considering changing their state tax codes in ways
that would let residents take advantage of other federal tax
breaks — in effect, restoring deductions that the tax law
scaled back....

Such ideas may sound far-fetched. And until
recently, they were mostly the province of tax professors
and bloggers. But they are now getting serious consideration
in state capitols where governors and legislators see the
Republican law as a thinly veiled assault on parts of the
country that typically vote for Democrats.

Companies, of course, have long sought to
exploit loopholes in the tax code. Governments, as a rule,
have not. State leaders, however, said Congress, in singling
out certain states, had broken an implicit compact with the
states.

“The game has changed,” said state Sen.
Stephen M. Sweeney, the Democratic president of New Jersey’s
Senate. “They’ve completely turned the tables against us.”

In particular, officials in the high-tax
states object to the law’s $10,000 cap on state and local
tax deductions, which were previously unlimited. That
provision will be particularly painful for residents of
states like Massachusetts, New York, New Jersey, California,
and Connecticut, which have high housing costs and high tax
rates....

State leaders are looking for longer-term
solutions. Some have raised the possibility of shifting away
from taxes on individuals toward taxes on corporations,
which are still fully deductible under federal law. But that
could cause its own problems: Raising taxes on businesses
could make it harder for those states to compete for
companies and jobs....

Some proposals are more complex. Kirk Stark,
a law professor at the University of California, Los
Angeles, has suggested that states encourage residents to
donate money to their state governments, then let the
governments credit those donations against their state
income taxes. Such donations would qualify as charitable
donations, which are still fully deductible on federal
taxes....

Another idea would be for states to partly
or completely replace their income taxes with payroll taxes
paid by employers, similar to taxes for Social Security and
unemployment insurance.

In theory, such a move would not change
after-tax income for either companies or individuals. It
would just change where the tax checks were coming from.
Companies would reduce workers’ pay by the amount of the
payroll tax, and would be able to deduct the payments on
their federal taxes. Because they would never receive the
money, workers would not be taxed on it....

Republicans argue there is a much simpler
solution for high-tax states: Lower their taxes.

State Sen. Joseph Pennacchio, a Republican
state senator in New Jersey, said he opposed limiting the
state and local tax deduction but New Jersey should focus
less on gaming the system and more on lowering its tax
burden.

There are signs that may be happening.
Sweeney, the Senate president, said that because of the new
tax law, he had “pressed the pause button” on a plan to
impose a new tax on millionaires.

“Maybe people are starting to realize,”
Pennacchio said, “you’ve got to tiptoe when it comes to
raising taxes, because it can do more harm than good.” ...

“I suppose the rational response for us is
to lower our taxes,” said Benjamin Barnes, who heads the
Connecticut Office of Policy and Management, “but we have a
public that has shown again and again that they expect high
levels of service.”

The great American migration out of high-tax
states like New York and Illinois may be about to
accelerate. The tax reform enacted last month caps the
deduction for state and local taxes, known as SALT, at
$10,000. This means millions of people will finally feel the
full tax burden imposed by state and local politicians. When
the SALT shield shrinks, so may people’s willingness to put
up with these high taxes.

Such states already are losing population,
and new Census Bureau data—released the same day tax reform
passed the House and Senate—shows the continued migration.
Of the seven states that grew the fastest between July 1,
2016, and July 1, 2017, four (Nevada, Washington, Florida
and Texas) have no income tax, and the other three (Idaho,
Utah and Arizona) have low taxes.

On the flip side, high-tax states like New
York, New Jersey, Connecticut, Illinois and Rhode Island
either lost residents or stagnated. Pennsylvania quietly
became the fifth-most-populous state in the nation,
displacing Illinois.

When people move, they take their money with
them. The five high-tax states listed above have lost more
than $200 billion of combined adjusted gross income since
1992, according to the website
HowMoneyWalks.com, which aggregates IRS data. In
contrast, Nevada, Washington, Florida and Texas gained
roughly the same amount.

If politicians in high-tax states want to
prevent this migration from becoming a stampede, they will
have to deliver fiscal discipline. At least a few seem to
realize this. New Jersey’s Gov.-elect Phil Murphy campaigned
on a promise to impose a “millionaires’ tax.” But the
Democratic president of the state Senate, Steve Sweeney,
said in November that New Jersey needs to “hit the pause
button” because “we can’t afford to lose thousands of
people.” His next words could have come from a Republican:
“You know, 1% of the people in the state of New Jersey pay
about 42% of its tax base. And you know, they can leave.”

New York City Mayor Bill de Blasio may need
to rethink his proposed millionaires’ tax. George Sweeting,
deputy director of the city’s Independent Budget Office,
told Politico in November that eliminating the SALT
deduction would “make it a tougher challenge if the city or
the state wanted to raise their taxes.” New York state
Comptroller Thomas DiNapoli added: “If you lose that
deductibility, I worry about more middle-class families
leaving.”

A year ago at this time, co-conspirators
House Speaker DeLeo and Senate President Rosenberg had
plotted, during the Legislature's previous extended holiday
vacation, and quickly rammed through a 50.4% pay increase
for themselves. They hiked their taxpayer-funded
"compensation" from $104,747 to $157,547 [details
here] — an annual increase
for each of them of $52,800. The additional raises for
other legislators and judicial branch employees
— necessary to make it
repeal-proof by the voters —
cost taxpayers $18 million.

Today one of the conspiracy's chief
architects — Sen. Stanley
Rosenberg — as a result of the
sexual misconduct/influence-peddling scandal and ongoing
investigation, has stepped down as senate president,
has been relocated to an office in the State House's
basement, and has therefore forfeited the fruits of his
grand conspiracy.

"What goes around comes around."

So far we haven't come across any unseemly
shenanigans on Beacon Hill upon return of our well-rested
and highly-paid legislators. Apparently there was
enough negative intrigue among them with the Rosenberg
investigation to permit adding more to it
— and 2018 being an election
year, they still will need to weather the blowback from
their obscene pay grab immediately following their last
election. They hope and pray the voters will have
forgotten, or forgiven. I hope they're wrong.

Much of the news of taxpayer interest is the
fallout from the end-of-year Trump federal tax reform and
tax cuts, the analysis and reactions. Imagine, not a
single Democrat in the U.S. Congress —
both in the U.S. House and U.S. Senate
— voted to reduce their constituents' tax burden and
encourage economic growth. Every Democrat voted to
deny us tax relief. Every last one of them prefer the
Obama era's "New Normal" of economic stagnation and income
decline.

And the highest officials in high-tax,
excessive-spending, heavily liberal Blue States are wringing
their hands and gnashing their teeth over its elimination of
the SALT (State And Local Taxes) deduction over $10,000.
Those Democrats have suddenly found religion, abruptly have
done an about-face and now are desperate to protect "the
richest one percent" from excessive taxation
— the folks who pay a
preponderance of all revenue —
as long as it keeps their states' high taxation on them
affordable, or at least excusable. If they can't lay
off much of the cost on the federal government taxpayers as
a deduction, they own the entire blame.

The schemes to impose a "millionaires' tax"
on the wealthier among us are starting to be dropped, or at
least soberly reconsidered. Suddenly out-migration of
their wealthier tax bases has become conceivable, even
likely, when there's nobody to blame but state government
tax-and-spend policies.

Will this surge of retrospection reach us
here in uber-liberal Massataxes, or will business-as-usual
reign on until there are only Takers and The Givers
have all wised up and moved out?

Remember, the more millionaires who take
their money and jobs and move to lower- or no-tax states,
the more of the tax burden to support an ever-increasing
bloated state budget will fall on the remaining Givers like
us. How long can productive workers, and jobs, remain
behind as our tax burdens inexorably ratchet up beyond even
subsistence-level?

The constitutionality of The Takers' "Fair
Share Amendment" (aka, the sixth graduated income tax
attempt; their "Millionaire's Tax") petition will be argued
before the state Supreme Judicial Court on Feb. 5. Its
sponsors will file their legal brief with the court in
support of their ballot question this Friday. The SJC
will decide whether it is allowed on the Massachusetts
statewide ballot in November.

Former Senate President Stanley Rosenberg, who
left his ornate third-floor office upon stepping
down from the post last month, has landed in a
basement office while an ethics investigation
into him plays out.

Rosenberg, who vacated the presidency amid
allegations his husband sexually assaulted or
harassed four men, will work with four staffers
out of Room 70 in the State House basement.

The space usually serves as a temporary office
for new senators as they await an office
assignment, according to Mara Dolan, a Rosenberg
spokeswoman.

"This is a standard temporary office for a
senator," Dolan said. "There's nothing unusual
about this."

It was an open question about where Rosenberg
would land in the State House after he stepped
down, but opted to remain in the Senate, on Dec.
4. Acting Senate President Harriette Chandler
assumed the top post in the body the same day.

Initially, Dolan declined today to tell the
Herald where his office would be, citing a
Senate policy that only Chandler's office could
reveal that detail. The Herald ultimately found
the office -- which didn't have Rosenberg's name
plate on it -- shortly before Chandler's office
confirmed its location, tucked in a suite of
offices next to the balcony of Gardner
Auditorium.

The Senate's Ethics Committee has launched a
formal probe into whether Rosenberg violated any
Senate rules after the Boston Globe published
the allegations against his husband, Bryon
Hefner. Hefner also reportedly bragged about the
influence he had over Senate business.

It's unclear how long the investigation, which
is being led by the firm Hogan Lovells, will
last. Chandler has said she intends to leave the
post once it's complete, but at least four
senators have shown interest in vying for the
post if it becomes vacant.

December tax collections shatter benchmark by
half a billion dollars
By Matt Murphy

Tax collections in December left Massachusetts
government flush with unbudgeted cash as
revenues for the first half of the fiscal year
have exceeded estimates by $728 million,
shedding light on Gov. Charlie Baker's decision
this week to lift the hold he had put on
legislative spending earmarks.

The Department of Revenue announced Thursday
that the more than $3 billion in taxes collected
in December exceeded projections by $527
million, or 21.2 percent, and beat last year's
mark by $517 million.

After the first six months of fiscal 2018, the
state has now collected more than $12.9 billion,
which is 6 percent above the benchmark and 8.1
percent, or $966 million, higher than the first
half of fiscal 2017.

Some of the above-benchmark cash may be needed
to pay bills associated with underfunded state
accounts. The Legislature over the years has
consistently underfunded certain spending areas,
including county corrections, MassHealth, snow
and ice removal and public defenders.

The news, which may have been sparked in part by
seasonal shopping, came with a note of caution
from Revenue Commissioner Christopher Harding.

"While the revenue numbers appear strong halfway
through the fiscal year, we caution against
using these results to project full year revenue
growth given that some tax categories may have
been affected by timing factors. We will closely
monitor revenues in January and during the
filing season," Harding said.

Some of the estimated income tax payments, which
beat benchmark by 153.3 percent, were likely
accelerated and would come out of January and
future month's collection totals, Harding said.
Withholding collections beat projections by $67
million, and Harding said that may have been due
to unanticipated end-of-year bonus activity.

Income taxes of $1.97 billion in December beat
the state's benchmarks by $479 million, 32.2
percent, and came in 32.9 percent higher than
last December.

Sales taxes were also up 6 percent over last
December.

Baker's budget office earlier this week said
preliminary December revenue totals factored
into the governor's decision to release his hold
on millions of dollars in funding that had been
earmarked by legislators in this year's $39.4
billion state budget. Baker originally held back
on releasing funds because he was concerned,
after multiple years of stagnant revenue growth
and budget crises, that the Legislature had left
some areas of government underfunded.

The snow inches piled up about as fast as tax
receipts in the state vault last month.

December's $3 billion tax haul left state
government flush with disposable income six
months into the fiscal year after collections
beat budgeted benchmarks for the first half of
the year by $728 million and exceeded last
year's half-year total by 8.1 percent.

The cushion was enough to convince Gov. Baker
this week to release his questionable hold on
legislative earmarks, which lawmakers cheered as
the spigot was turned back on for local
programs, including some homeless shelters
stretched thin by the winter freeze.

But the welcome fiscal news also came with a
caveat.

Revenue department officials said collections
were "heavily back loaded" to the final few
collection days of the month, and may, in part,
have to do with a shift in the timing of
estimated payments before the New Year and the
effective date of tax rules under the new
federal tax law.

It is also believed that the strong performance
had something to do with end-of-year bonuses,
which companies may have been more comfortable
doling out as the corporate tax rate is due to
fall.

If taxpayers accelerated payments to take
advantage of expiring deductions and other tax
code benefits, the December windfall, officials
said, may get taken out of receipts expected in
January or in later months in the year, serving
to level off the rate of the growth.

Another benefit from the Republican tax bill,
which was ridiculed by political leaders around
the state, may be an electricity rate discount.

Eversource, recently approved by state
regulators to implement significant rate
increases, was one of the companies feeling
generous, and announced that because of the
corporate tax cut they would actually be cutting
rates in eastern Massachusetts and reducing the
hike in western Massachusetts.

Even Attorney General Maura Healey, who had been
fighting with the DPU to reject the Eversource
rate hikes, had to concede, "Sometimes,
consumers win."

December's massive tax haul may influence state
government leaders as they work next week
against an approaching deadline to agree on an
estimate of available tax revenues for fiscal
2019, which begins in July 1.

Tax receipts in December exceeded projections by
$527 million and collections over the first six
months of fiscal 2018 are up 8.1 percent, or
nearly $1 billion. It's the kind of revenue
growth that many in state government believed
would follow the steady job growth Massachusetts
has been experiencing. But the state has instead
been stung by anemic growth in recent years.

By Jan. 15, Administration and Finance Secretary
Michael Heffernan, Senate Ways and Means
Committee Chair Karen Spilka and House Ways and
Means Committee Chair Jeffrey Sanchez must agree
on a tax collection estimate that will guide
spending plans that Gov. Charlie Baker will
unveil later this month, with House and Senate
budget bills to follow in April and May.

The influx of revenues may give state leaders
cover to pump up estimates and fatten election
year spending plans. The risk in that approach
is a return to the slow-growing revenues that
characterized the second half of each of the
last two fiscal years.

Some Eversource customers who braced for higher
charges could end up paying less for their
electricity after the energy company proposed
changes based on the new federal tax law.

Eversource anticipates paying millions of
dollars less in taxes under the tax law
President Donald Trump signed in December, which
reduces the corporate income tax rate from 35
percent to 21 percent.

"We believe it's important that our customers
reap the benefit of a lower tax rate,”
Eversource Massachusetts Electric Operations
President Craig Hallstrom said in a statement.
"As a regulated power company our rates are
based on our costs, including federal taxes, so
if taxes are reduced ultimately costs are
reduced and that benefits our customers."

The Department of Public Utilities in November
approved a rate increase of $12.2 million for
Eversource customers in eastern Massachusetts
and approximately $24.8 million for western
Massachusetts.

Eversource is now proposing to lower its
existing rates for eastern Massachusetts by
$35.4 million, along with a smaller hike of
$16.5 million for its customers in the western
part of the state.

Attorney General Maura Healey, who acts as the
state's ratepayer advocate, argued against the
initial rate hike and last month urged the DPU
to recalculate the rates it approved for
Eversource to reflect the new tax law.

This week, Healey called on other utilities to
take similar steps to pass on savings to
Massachusetts residents.

"This tax bill is being paid for by the people
of Massachusetts, so the money should go back in
their pockets," Healey said in a statement. "Our
office filed this action to ensure that these
savings go to customers. We are glad that
Eversource has done the right thing by agreeing
to lower its rates and we call on all our state
regulated utilities to do the same."

Eversource, which has 1.4 million electricity
customers in 140 Massachusetts communities,
filed for a rate increase in January 2017,
saying their proposed rates incorporated costs
associated with capital investments geared
towards improving service reliability and were
based on "actual operation and maintenance cost
deficiencies for a test year ending June 30,
2016."

Democrats in high-tax states plot ways to blunt
impact of new tax law
By Ben Casselman

NEW YORK — Democrats in high-cost, high-tax
states are plotting ways to do what their
states’ representatives in Congress could not:
Blunt the effect of the newly passed Republican
tax overhaul.

Governors and legislative leaders in New York,
California, and other states are considering
legal challenges to elements of the law that
they say unfairly single out parts of the
country. They are looking at ways of raising
revenue that are not penalized by the new law.
And they are considering changing their state
tax codes in ways that would let residents take
advantage of other federal tax breaks — in
effect, restoring deductions that the tax law
scaled back.

One proposal would replace state income taxes,
which are no longer fully deductible under the
new law, with payroll taxes on employers, which
are deductible. Another idea would be to allow
residents to replace their state income tax
payments with tax-deductible charitable
contributions to their state governments.

Such ideas may sound far-fetched. And until
recently, they were mostly the province of tax
professors and bloggers. But they are now
getting serious consideration in state capitols
where governors and legislators see the
Republican law as a thinly veiled assault on
parts of the country that typically vote for
Democrats.

Companies, of course, have long sought to
exploit loopholes in the tax code. Governments,
as a rule, have not. State leaders, however,
said Congress, in singling out certain states,
had broken an implicit compact with the states.

“The game has changed,” said state Sen. Stephen
M. Sweeney, the Democratic president of New
Jersey’s Senate. “They’ve completely turned the
tables against us.”

In particular, officials in the high-tax states
object to the law’s $10,000 cap on state and
local tax deductions, which were previously
unlimited. That provision will be particularly
painful for residents of states like
Massachusetts, New York, New Jersey, California,
and Connecticut, which have high housing costs
and high tax rates.

Even in those states, most residents will get a
temporary tax cut because of other provisions of
the law, including lower tax rates and an
increase in the standard deduction. But the cap
on the state and local tax deduction could pose
a serious threat to state budgets, because it
makes state taxes more expensive for residents.
That could make it harder for states to raise
taxes, particularly on wealthy residents, and
could increase pressure to cut spending.

The law could also have broader economic
consequences. Business leaders, for example,
have said they worry about attracting workers if
New York and other cities become even more
expensive than lower-tax areas.

State leaders are still figuring out their
response to the new law, and few have yet
endorsed specific proposals. But they are moving
quickly. Gov. Andrew M. Cuomo of New York, a
Democrat, recently said he expected to provide a
more detailed plan when he presented his state
budget in mid-January.

“They want to target us for certain provisions?”
Cuomo asked at a recent news conference. “Well,
let’s see if we can redesign our tax code to get
out of the federal trap that they set.”

Cuomo fired one of the first shots when he
signed an executive order that let New Yorkers
prepay their 2018 property taxes in 2017, before
the new deduction cap takes effect. Several
other state and local governments followed suit.

But in an indication of the hard road ahead for
Democrats, the Internal Revenue Service issued
guidance Wednesday limiting the prepayment
option. And the option was only a temporary
reprieve — at best, homeowners could delay the
effect by a single year.

State leaders are looking for longer-term
solutions. Some have raised the possibility of
shifting away from taxes on individuals toward
taxes on corporations, which are still fully
deductible under federal law. But that could
cause its own problems: Raising taxes on
businesses could make it harder for those states
to compete for companies and jobs.

Other lawmakers have floated the idea of seeking
out new sources of revenue, perhaps by
legalizing — and taxing — marijuana.

Some proposals are more complex. Kirk Stark, a
law professor at the University of California,
Los Angeles, has suggested that states encourage
residents to donate money to their state
governments, then let the governments credit
those donations against their state income
taxes. Such donations would qualify as
charitable donations, which are still fully
deductible on federal taxes.

Stark noted that such programs existed, albeit
in a much more limited form. Several states let
residents count donations to private schools as
state tax payments under certain circumstances,
an initiative that conservatives have promoted
as a step toward school vouchers.

Another idea would be for states to partly or
completely replace their income taxes with
payroll taxes paid by employers, similar to
taxes for Social Security and unemployment
insurance.

In theory, such a move would not change
after-tax income for either companies or
individuals. It would just change where the tax
checks were coming from. Companies would reduce
workers’ pay by the amount of the payroll tax,
and would be able to deduct the payments on
their federal taxes. Because they would never
receive the money, workers would not be taxed on
it.

“In effect, it preserves the state income tax
deduction,” said Dean Baker, a liberal economist
who has been pushing for the plan.

Both ideas — and others like them — would face
logistical hurdles, legal challenges and, most
likely, opposition from Congress and the federal
government. But they are nonetheless rapidly
moving from the realm of academic theory into
actual policymaking.

State Sen. Kevin de León, a Democrat who is
president pro tem of the California Senate, has
announced plans to introduce legislation aimed
at reducing the effect of the tax law. He is
consulting with Stark, among others, to develop
the legislation.

De León and other legislators concede that they
are trying to game the system. But they argue
that Congress left them little choice.

“This is highly unusual tax policymaking,” said
de León, who has announced plans to run for the
U.S. Senate next year. “However, this is a
highly unusual time in the history of this
country.”

Republicans argue there is a much simpler
solution for high-tax states: Lower their taxes.

State Sen. Joseph Pennacchio, a Republican state
senator in New Jersey, said he opposed limiting
the state and local tax deduction but New Jersey
should focus less on gaming the system and more
on lowering its tax burden.

There are signs that may be happening. Sweeney,
the Senate president, said that because of the
new tax law, he had “pressed the pause button”
on a plan to impose a new tax on millionaires.

“Maybe people are starting to realize,”
Pennacchio said, “you’ve got to tiptoe when it
comes to raising taxes, because it can do more
harm than good.”

Still, lawmakers from both parties said it would
be hard to cut taxes enough to offset the effect
of the new tax law. For one thing, states like
New Jersey and New York have high costs of
living and high housing costs, not just high tax
rates. Even if their tax rates were the same,
far more homeowners in New Jersey than in
Alabama would hit the $10,000 cap.

But perhaps more significant, cutting taxes
would also mean cutting funding for schools,
subway systems, anti-poverty programs and other
services that residents in those states have
come to expect.

“I suppose the rational response for us is to
lower our taxes,” said Benjamin Barnes, who
heads the Connecticut Office of Policy and
Management, “but we have a public that has shown
again and again that they expect high levels of
service.”

Philip D. Murphy, a Democrat who will be sworn
in as governor of New Jersey in January, has
said his administration might challenge the law
on constitutional grounds. Democrats in other
states have made similar suggestions.

Legal scholars said states could try to argue
that the law treated certain states unfairly.
They might also argue that the 16th Amendment,
which authorized the federal income tax, meant
to define “income” as income after state taxes
had been paid, essentially enshrining the state
and local tax deduction in the Constitution.

Few scholars, however, think such arguments have
much chance of success. And Daniel Hemel, a law
professor at the University of Chicago, said
Democrats should think twice before making them.

“The Democratic Party’s long-term agenda
requires the federal government being able to
raise revenue,” Hemel said. “This would be
short-termism at its worst, potentially setting
back the progressive agenda for decades to come
in response to a bad tax bill.”

Then, there are some state leaders who say the
best way to fight the new law is neither through
legal challenges nor through complex changes to
tax codes.

“Our first line of defense,” Barnes, the
Connecticut official, said, “is to take back
Congress for Democrats.”

The great American migration out of high-tax
states like New York and Illinois may be about
to accelerate. The tax reform enacted last month
caps the deduction for state and local taxes,
known as SALT, at $10,000. This means millions
of people will finally feel the full tax burden
imposed by state and local politicians. When the
SALT shield shrinks, so may people’s willingness
to put up with these high taxes.

Such states already are losing population, and
new Census Bureau data—released the same day tax
reform passed the House and Senate—shows the
continued migration. Of the seven states that
grew the fastest between July 1, 2016, and July
1, 2017, four (Nevada, Washington, Florida and
Texas) have no income tax, and the other three
(Idaho, Utah and Arizona) have low taxes.

On the flip side, high-tax states like New York,
New Jersey, Connecticut, Illinois and Rhode
Island either lost residents or stagnated.
Pennsylvania quietly became the
fifth-most-populous state in the nation,
displacing Illinois.

When people move, they take their money with
them. The five high-tax states listed above have
lost more than $200 billion of combined adjusted
gross income since 1992, according to the
website
HowMoneyWalks.com, which aggregates IRS
data. In contrast, Nevada, Washington, Florida
and Texas gained roughly the same amount.

If politicians in high-tax states want to
prevent this migration from becoming a stampede,
they will have to deliver fiscal discipline. At
least a few seem to realize this. New Jersey’s
Gov.-elect Phil Murphy campaigned on a promise
to impose a “millionaires’ tax.” But the
Democratic president of the state Senate, Steve
Sweeney, said in November that New Jersey needs
to “hit the pause button” because “we can’t
afford to lose thousands of people.” His next
words could have come from a Republican: “You
know, 1% of the people in the state of New
Jersey pay about 42% of its tax base. And you
know, they can leave.”

New York City Mayor Bill de Blasio may need to
rethink his proposed millionaires’ tax. George
Sweeting, deputy director of the city’s
Independent Budget Office, told Politico in
November that eliminating the SALT deduction
would “make it a tougher challenge if the city
or the state wanted to raise their taxes.” New
York state Comptroller Thomas DiNapoli added:
“If you lose that deductibility, I worry about
more middle-class families leaving.”

In October, 36 California Democrats in Congress
wrote to GOP leaders: “The elimination of SALT
would pressure state and local governments to
make cuts and take in less revenue.” But this
fiscal day of reckoning will be a good thing for
the beleaguered residents of high-tax states and
cities.

If tax reform was Congress’s Christmas present
to the American people, the limit on the SALT
deduction is a gift that will keep on giving. In
the years to come it will spur additional tax
cuts and forestall tax increases at the state
and local level.

Democrats want to use the SALT limitation as a
wedge to pick up House seats in 2018. They
should be more concerned about losing control of
state capitals and city councils once voters at
last feel the full effects of their
tax-and-spend agendas. Some residents will vote
with their feet, but the rest will just vote.

Mr. Ortiz is president and CEO of the Job
Creators Network.

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